Written by Bradley O. Cebeci, Partner at Rome LLP | Payments Law, FTC Defense, E-commerce, and Complex Business Litigation, and Liz Rocha, Associate at Rome LLP | Payments Law, Complex Commercial Litigation and Class Actions
On July 8, 2025, the Eighth Circuit Court of Appeals issued a ruling vacating the FTC’s Negative Option Rule, concluding that the FTC failed to comply with statutory rulemaking procedures. Because the U.S. Judicial Panel on Multidistrict Litigation consolidated all four petitions previously pending in the Fifth, Sixth, Eighth and Eleventh Circuits in the United States Court of Appeals for the Eighth Circuit, this ruling decided the issue in a single stroke and offers relief to marketers who would have been subject to broad new obligations.
The Court focused on a central procedural failure by the FTC in failing to issue a preliminary regulatory analysis. Under Section 22 of the FTC Act, it was required to issue a preliminary regulatory analysis if a proposed rule was expected to have an annual effect on the economy of $100 million or more. Instead, the FTC issued only the final regulatory analysis alongside the final Rule.
The Court explained that the requirement to issue this preliminary analysis is not tied to the initial notice of proposed rulemaking and may arise later in the process if economic projections change. It wrote that while simultaneous issuance is typical, “deviating from this sequence of events is not statutorily prohibited.” However, the absence of a preliminary analysis deprived stakeholders of a meaningful opportunity to engage with the FTC’s rulemaking through the “public comment period” since it is impossible for interested parties to submit comments “in response to the preliminary regulatory analysis” if no preliminary regulatory analysis is issued.
While the FTC argued that its notice of proposed rulemaking included sufficient discussion of alternatives and compliance costs, the Court disagreed. It described the FTC’s discussion of alternatives in the final rule as “perfunctory” and found that neither the informal hearing nor the final regulatory analysis compensated for the lack of a full, early-stage analysis. The discussion alternatives were limited to narrow issues such as consent for free trials and reminder requirements, which the Court found resulted in Petitioners having “lost a notable opportunity to dissuade the FTC from adopting the Rule as proposed.”
Drawing on decisions from the D.C. and Fifth Circuit Courts of Appeal, the Court emphasized that procedural violations that limit the ability to comment are not harmless errors. (citing Chamber of Commerce of the U.S. v. SEC, 443 F.3d 890 (D.C. Cir. 2006), and Nat’l Auto. Dealers Ass’n v. FTC, 127 F.4th 549 (5th Cir. 2025)). It cited Chamber of Commerce v. SEC and National Automobile Dealers Ass’n v. FTC, both of which vacated agency rules due to inadequate notice or analysis. Specifically, the Court adopted the Fifth Circuit’s reasoning in National Automobile Dealers Ass’n v. FTC, which found that even when petitioners had participated in every available phase of the rulemaking, the failure to follow statutorily mandated procedures still prejudiced their opportunity to influence the final rule.
Ultimately, the Court held that the procedural violation warranted full vacatur “of the entire Rule is appropriate in this case because of the prejudice suffered by Petitioners.”
Of course, this decision does nothing to relieve marketers from their continuing obligations to comply with the Restore Online Shoppers’ Confidence Act (ROSCA), the California Automatic Renewal Law (and similar state laws), or Visa and Mastercard Rules for Negative Option Merchants.
I have over 20 years of experience focused on the payment processing industry and advising merchants with regard to FTC and state AG compliance issues. I regularly review negative option billing practices for compliance with card brand rules and applicable state and federal law for merchant clients. I can help you navigate these requirements, get ahead of any issues and respond to related regulatory investigations. Feel free to reach out to me directly at [email protected] to ask me a question or schedule a consultation.
